Raghuram Rajan says state polls leading to surge in cash circulation

RBI said on Tuesday the ongoing Assembly poll in five states is one of the reasons for a spike in cash in people's hands and it is studying the matter thoroughly.

Around election time, cash with the public does normally increase, Governor Raghuram Rajan said after the announcement of the first bi-monthly monetary policy at the RBI headquarters in Mumbai.

"You can guess as to reasons why, we can also guess, he quipped, without specifying the reasons. Allegations of cash for votes have been made in the past elections and the campaigning is often marred by instances of polling officials and government agencies recovering huge cache of unaccounted money."

Elections are under way in Assam, West Bengal, Kerala, Tamil Nadu and the Union Territory of Puducherry. Assam and WB had the first phase of polling on Monday.

"You see some (spike) not just in the state going to elections, but also neighbouring states. There is something there, we need to understand it better," Rajan said.

He, however, admitted that cash in people's hands is more by up to Rs 60,000 crore at present, which is abnormal.

Data released by RBI suggested there was a 48 per cent increase in currency circulation at Rs 2 trillion for the fortnight ended March 18, which has led to various theories and calls for need to keep a tab on the matter.

Also, for the fortnight ended the same week, bank deposit growth had fallen below 10 per cent to 9.9 per cent, which was a 53-year low, while advances have picked up.

On this, the governor said it is good that advances have started growing above the deposit rates. And that deposit rates at 9.9 per cent is not something that one must be sneezed at. This is a healthy growth trend. RBI's general observation is the cash goes up during festivities.